A Tale of Two (More) Bankruptcies

posted at 10:45 am on October 31, 2011 by Ed Morrissey

Stop me if this sounds familiar. The Department of Energy approves multi-million-dollar loan to green-tech energy firm as part of its job-stimulus bill, only instead of stimulating jobs, the company declares bankruptcy. In this case, it only took a year after the loan was granted for Beacon Power to file for protection from its creditors:

Beacon Power Corp filed for bankruptcy on Sunday, just a year after the energy storage company received a $43 million loan guarantee from a controversial Department of Energy program.

The bankruptcy comes about two months after Solyndra — a solar panel maker with a $535 million loan guarantee — also filed for Chapter 11, creating a political embarrassment for the administration of President Barack Obama, which has championed the loans as a way to create “green energy” jobs.

Beacon Power drew down $39 million of its government-guaranteed loan to fund a portion of a $69 million, 20-megawatt flywheel energy storage plant in Stephentown, New York.

Well, who could have seen this coming? Er … anyone who could read a ledger, apparently:

The Tyngsboro, Massachusetts-based company was spun off of SatCon Technology Corp in 1997 and went public in 2000. It said in documents filed with Delaware’s bankruptcy court that it had $72 million in assets and $47 million in debts.

Beacon currently operates at a loss and its revenues are not enough to support its operations, it said in court documents.

How well did Beacon operate? NASDAQ delisted the company not too long after getting the DoE loan, and no one else but the DoE was prepared to offer financing for a company that couldn’t turn a profit even with taxpayer-backed loans. Beacon blames this on the “current political climate,” but it sounds a lot more like the problem is Beacon’s current economic model.

That’s not the only noteworthy taxpayer-backed loan recipient to go under in the last few days. The other case doesn’t involve a green-tech firm, nor did its loan originate in the Obama administration. However, it’s a good object lesson in crony capitalism and in regulatory interference. Open Range promised that it could deliver high-speed Internet access via satellite to isolated, rural areas, but despite having a $267 million line of taxpayer credit, never delivered:

As the government prepares Thursday to commit billions of dollars to bring high-speed Internet to rural areas, the biggest-­ever such project has collapsed.

The company Open Range, backed by a commitment of $267 million in loans from the Agriculture Department, filed for bankruptcy this month. Taxpayers are on the hook for $74 million that the upstart hasn’t repaid. And now the company, some analysts and a senior government official are blaming poor judgment and Washington bureaucracy as the reasons Open Range failed.

Democrats are demanding a probe of Open Range, thinking that the Bush-era loan guarantees will soften the blow of Solyndra and Beacon, among other Obama Porkulus flops. However, there is more to this story than just the original loan, and the Washington Post points to a regulatory effort to boost an Obama crony. In order to make its system work, Open Range had to get the FCC to approve waivers for usage of frequency ranges — but the FCC chose a different company to boost instead:

The FCC’s handling of the matter has come under scrutiny by lawmakers partly because the agency promoted a similar venture called LightSquared about the same time it was turning its back on Open Range. Critics of the FCC have accused the agency of favoring LightSquared because it is backed by Democratically connected hedge fund financier Philip Falcone.

“There is clearly the perception of favoritism,” said Tim Farrar, an independent analyst at TMF Associates. Farrar said his consultancy has no financial interests in LightSquared or Open Range’s venture. A similar charge was levied by Globalstar in a recent letter to the FCC.

Readers will remember the LightSquared story, where a 4-star Air Force general accused the White House of pressuring him to change his Congressional testimony to favor the firm, and a second witness got “guidance” to do the same. The House Oversight Committee is already probing LightSquared’s deal. What we can say at the moment that having government conduct these loans tends to distort the marketplace, and it’s hardly a coincidence that those distortions end up favoring political allies — at the expense of taxpayers.

Update: Verum Serum makes a notable catch on the Beacon Power story, which is that the firm was alerted to a possible NASDAQ delistingbefore the DoE granted the loan:

In mid-September [2009], Beacon received word from NASDAQ that it was out of compliance with the exchange’s minimum trading-price of $1 per share. Beacon Power closed at 72 cents a share the day NASDAQ sent its notice. Beacon said it believes it meets applicable standards, other than the minimum bid price requirement.

Beacon is using the money to develop a 20 MW regulation plant at a site in Stephenton, NY. The site will use several 1 MW flywheels to store energy as well as electrical and technological equipment.

Company spokesman Gene Hunt said Beacon didn’t have financial advisors per se, just its outside law firm of Edwards, Angell, Palmer & Dodge. “We also used our in-house expertise and we have good relationships with our congressional members.”

Who needs financial advisers when you have Congressmen in your pocket? Other than taxpayers, I mean.

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

heh. Ed is mertalizing charles Dickens….. Back in 6th grade, I had to memorize that opening 1st page of The Tale of Two Cities—-Great Read and quite appropriate for today’s times. The setting is the French R3V0looshun.

My question is, what happens to this money once all of these companies go bankrupt? Those assets have to be declared and they have to go somewhere? Where do they go, who gets them? That money doesn’t just vanish into the black hole of Democratic coffers? or does it?……

Company spokesman Gene Hunt said Beacon didn’t have financial advisors per se, just its outside law firm of (John) Edwards, (Hell’s) Angell, Palmer (of Tax Dollars) & Dodge (Responsibility). “We also used our in-house expertise and we have good relationships with our congressional members.”

Is there a Republican candidate with the interest and ability to begin the process of getting the federal government out of this subsidy business? The stories keep coming in but there is little meaningful outrage expressed in congress, which is a major culprit in all of this. Every one of these stories could be cited as a reason not to pass any Obama spending bill. Instead, crickets.

EnerDel got an Energy Department grant in early 2010 for battery manufacturing in Indiana but the stock of EnerDel’s parent company, Ener1, fell from $4.04 in 2010 to just 9 cents on Thursday. By Friday NASDAQ had pulled the company from its listing leaving the stock at $0.00.

NASDAQ took action after sending the company a notice saying it was out of compliance for failing to file its June 30th financial quarterly filing. The company notified shareholders back in August that two of the company’s quarterly filings “should no longer be relied upon” and the company would have to re-do their financial statements.

But but but… I did drive up the cost of energy and do substantial damage to what was left the economy!! I just couldn’t make energy costs, you know, skyrocket!! That would have made all these green energy thingies profitable!!

Congress didn’t pass cap and trade!!! Those damned evil skeptics!!! They don’t know what’s good for them!! And what is good for Al Gore!! And what is good for our green energy investor supporters and bundlers!!

Lisa Jackson is doing her best to kill dinosaur energy!! So is Ken Salazar!! And Steven Chu!! Look at how many coal and pil industry employees we have put out of work!! But I can’t do it all by myself from the White House!!!

Look at the timeline of insider trading Aug 2008-Aug 2009- wonder if there were promises of DOE loans made just in time to get more election money? Wasn’t August/Sept 08 a huge windfall month for his campaign?

I should point out that Beacon Power isn’t an alternative energy company.

The company flywheels store power for a short periods of time in order to help balance the constant differences between the grid’s electrical generation sources and the electrical loads on the grid.

That being said, government needs to get out of the venture capital business.

blink on October 31, 2011 at 11:13 AM

Flywheels are one of the storage schemes to attempt to make “green” energy more functional; they are trying to even out the intermittent nature of “green” sources.
You’re technically correct but the usage is another part of the “green” scam.

Democrats are demanding a probe of Open Range, thinking that the Bush-era loan guarantees will soften the blow of Solyndra and Beacon

If we can find proof of the government wasting money pointlessly in the past, it’ll defend us pointlessly wasting more money in the future.

Once people know other politicians also wasted their money; they’ll love us again for wasting their money… somehow.

Does anyone see this actually working? Sure it’ll work on the most liberal partisan 10-15% of the country; but so would a claim of “we figured it was worth the risk” and letting it go… or any other claim really; they’re not going to be picky about your excuses.

Will it work outside the limited hard-left partisans who would accept any excuse?

Flywheels are one of the storage schemes to attempt to make “green” energy more functional; they are trying to even out the intermittent nature of “green” sources.
You’re technically correct but the usage is another part of the “green” scam.

mad scientist on October 31, 2011 at 1:29 PM

Not exactly. I just browsed around on their website and what they’re trying to do is come up with a mechanism to reduce the need for units within a system to perform what we refer to as load follow. Load follow designated units drop or raise output based on system needs. Some fossil units actually have controls that give the load dispatchers the ability to raise or lower generation themselves within pre-set parameters. One problem I see with their system is that it’s too small to be of much use, it would take a lot of those little flywheels to be effective. Here’s what we went with for “Storing” our generation to reduce the need to load follow.

Are you seriously trying to excuse (defend???) obama’s stupidity by pointing to boehner’s stupidity? Do you really think anyone here agrees with either stupidity? No, of course not. You just had to have your knee-jerk reaction brought on by never thinking a politician and lawyer would ever do anything unethical (as long as he’s a democrat).

It will never occur to you that any politician with a “D” behind their name could ever be anything but totally perfect. Pity really.

You’re correct. They were trying to sell their services for frequency regulation – helping the grid operators maintain 60Hz by providing load or power depending on what the grid needed. If the grid needed load, then they would use grid power to accelerate their flywheels. If the grid needed power then they would us the flywheel kinetic energy to generate electricity.

You’re right, their systems were very small.

mad scientist, you are right about the green sales pitch. They sold themselves as something that would be needed to smooth the variance of wind power. It seems as if government employees believed this hype.

You’re correct. They were trying to sell their services for frequency regulation – helping the grid operators maintain 60Hz by providing load or power depending on what the grid needed.

mad scientist, you are right about the green sales pitch. They sold themselves as something that would be needed to smooth the variance of wind power. It seems as if government employees believed this hype.

blink on October 31, 2011 at 5:31 PM

Oddly enough plant operators don’t usually even think in terms of frequency. About the only time we concerned ourselves with it is when we were placing a unit on the line or when we were testing one of our emergency diesels in the isochronous mode. Our only true indication of grid frequency was on a strip chart recorder in the back of the control room. The guy operating the unit couldn’t even see it. Once every four hours the control room rover logged what it indicated. The load dispatchers probably monitored it a lot closer but I don’t really know. When I talked to them, which was frequently all they seemed interested in was megawatts/$$$$. I do recall one instance when my unit did a large load grab which we correctly judged to be caused by a very large power plant tripping somewhere. Our frequency actually dipped by a small fraction of a cycle (hertz), enough that we could see the dip on the strip chart which was most unusual. When we contacted system operations they were completely oblivious to the event and hadn’t even noticed that there was a change in frequency. Turns out that it was one of the D.C. Cook units up in Michigan that had tripped. About 1100 Mwe at that time.

You’re right about the sales pitch but it’s not only government employees that believe this hype it’s most people who aren’t involved in power generation. People in general just don’t understand this subject. It’s sad that the government employees that make decisions about this are so ignorant of facts concerning it.

From what I understand, the grid operators pay for actual frequency regulation by the MWh, but it’s not much. I actually looked seriously at this company when it was looking for capital over 4 years ago, but it was obvious that their margins were going to be too thin and that the grid operators weren’t excited enough to drive the testing process very quickly – your notes about frequency doesn’t surprise me. There doesn’t seem to be a good reason to care very much.

You’re right that it’s not just government employees that are stupid about his stuff. There are plenty of professional investors that have bought into the hype of these green technologies even when the numbers don’t add up.

I remember when biofuels plants were all the rage. Investment bankers would be looking for $100m to build a plant. They would offer only a 1/3 ownership stake (which implies a $300m valuation), and the plant would only be expected to do $30m of revenue after 3 years of plant construction. No payback seemed likely. And yet dozens of these things were getting funded. We all know how that turned out. These plants are operating at 1/3 capacity and have been forced to restructure their debt. Sad.

I’ll say this again. Keep on eye of Obama’s green investments. I would expect many of them to be out of businesses prior to the election.

your notes about frequency doesn’t surprise me. There doesn’t seem to be a good reason to care very much.

blink on October 31, 2011 at 7:28 PM

There are so many units tied onto the network that no individual plant can change it much. Once a unit is synched to the grid it’s locked into whatever frequency the system is running. That’s always 60 hertz. Don’t know if you know this but when synching a generator onto the grid we don’t actually check frequency. The standard procedure is to run the turbine/generator up to the correct rpm and then turn on an instrument called the synchroscope. You then adjust the turbine speed until you get the synch scope turning in the fast direction at about the same rate as the minute hand of a clock or slower. That means that generator frequency is slightly higher than system frequency. When the scope is between five till noon and straight up you close the output breaker. When that breaker closes frequency locks in at system frequency and the unit will pick up a few megawatts. You don’t ever want to close that breaker out of synch bad things will happen if you do. We actually had an auto synch mode that worked fine and we used it as the preferred method but everyone trains to do it manually if needed.

Was scouring the catalog database to try to find some actual product being auctioned. There doesn’t seem to be anything actually produced there. Everything for auction seems to be board room or factory floor goods.

Does anyone know about theses guys? Did they get to any competent production level?